Growth in low income developing countries to stall in 2020 amid Covid-19, IMF says

Growth in low-income developing countries (LIDCs) is expected to come to a “standstill” in 2020 due to a sharp contraction in exports, fewer capital and remittances inflows and reduced tourism receipts, three senior officials from the International Monetary Fund said in a joint blog post.

These countries had registered a growth of 5 per cent in 2019, according to the officials.

“LIDCs have both been hit hard by external shocks and are suffering severe domestic contractions from the spread of the virus and the lockdown measures [adopted] to contain it,” Daniel Gurara, Stefania Fabrizio and Johannes Wiegand from the IMF’s strategy, policy, and review department, said. “At the same time, limited resources and weak institutions constrain the capacity of many LIDC governments to support their economies.”

LIDCs are a group of 59 IMF member countries primarily defined by income per capita level below a certain threshold, set at $2,700 (Dh9,915) in 2016. This group of countries contains one-fifth of the world’s population —1.5 billion people — but account for only 4 per cent of global output. Bangladesh, Nepal, Bhutan, Nicaragua, Somalia, Mauritania, Afghanistan and Djibouti, among others, are included in the group.

Remittances, which exceeded 5 per cent of gross domestic product in the majority of LIDCs last year, have been falling since the outbreak of the pandemic, according to the officials from the Washington-based lender.

In Bangladesh, remittances fell by 18 per cent between April and May year-on-year, while in the Kyrgyz republic, remittances dropped 39 per cent.

“The repercussions are likely to be felt widely where remittances are the main source of income for many poor families,” the IMF officials said.

Though many LIDCs introduced strict containment measures such as border closures and school shutdowns to stop the spread of the pandemic, the officials said such measures have not benefited these countries.

Recent surveys conducted across 20 African countries reveal that more than 70 per cent of respondents risk running out of food during a lockdown that lasts more than two weeks, the officials said.

“As broad-based containment becomes difficult to sustain, LIDCs should transition to more targeted measures, including social distancing and contact tracing — Vietnam and Cambodia are good examples,” they said.

“Policy support should focus on supporting the most vulnerable, including the elderly, and on limiting the health crisis’ long-term fallout.”

The officials said that technology can be used in innovative ways where the necessary infrastructure exists.

They pointed out the examples of Rwanda, which is leveraging its digital finance infrastructure to discourage the use of cash, and Togo, which is employing the voter registration database to channel assistance to vulnerable groups.

“Despite the best efforts of LIDC governments, lasting damage seems unavoidable in the absence of more international support. Long-term ‘scarring’—the permanent loss of productive capacity—is a particularly worrisome prospect.”

Scarring would trigger severe setbacks to LIDCs’ development efforts, including undoing the gains in reducing poverty over the last 7 to 10 years, and exacerbating inequality, including gender inequality, according to the officials.

The IMF officials also urged the international community to support LIDCs in tackling the pandemic.

Priority should be given to guaranteeing essential health supplies, avoiding protectionist measures and extending financing facilities to support the countries, the officials said. Restructuring of debt will also benefit the countries.

“Urgent action by the international community can save lives and livelihoods in LIDCs."

The IMF has provided emergency financing to 42 LIDCs since April.